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Oct 11, 2018

Government debt yields
sank Thursday after the Labor Department said consumer prices rose less
than expected in September, calming inflation fears that sent the
10-year Treasury yield to its highest in seven years earlier this week.
The headline consumer price index came
in at 0.1 percent, short of the 0.2 percent anticipated and following
August's 0.2 percent gain. Excluding volatile food and energy
components, the CPI edged up 0.1 percent for the second straight month,
bringing the year-over-year gain in the core figure to 2.2 percent.
The yield on the benchmark 10-year Treasury note fell to 3.14 percent at 4:06 p.m. ET, down from 3.19 percent immediately before the CPI release. The yield on the 30-year Treasury bond dropped to 3.317 percent. Bond yields move inversely to prices.
The 10-year Treasury yield has
climbed about 15 basis points to multiyear highs over the last seven
days amid a report Friday which showed the lowest unemployment rate in
49 years, along with rising wages.

Recent employment reports have added to the
now-widespread view that the labor market is near or beyond full
employment and have started to show acceleration in wage growth. That
could be a worry for the Federal Reserve trying to keep a lid on
inflation.
Though consumer prices
came in softer than expected, the print is unlikely to impact market
expectations for a fourth rate hike from the Federal Reserve before the
end of the year.
"CPI was a miss, but it
doesn't necessarily portend broader inflation trends," said George
Goncalves, head of fixed-income strategy at Nomura Securities
International. "As the Fed is watching this information come in over the
months, you get mixed reads, so this does not stop them. They're making
their way to their neutral rate."
As of 3:58 p.m. ET, expectations for a hike at its December meeting held around 78 percent, according to the CME Group's FedWatch tool.
Equity markets around the
world slumped Thursday. Asia-Pacific stocks saw sharp declines by the
region's market close, while European shares tumbled in its morning
trade. In the U.S., futures tanked following on from a sharp drop seen
in the previous session where the Dow closed more than 800 points down.
Markets have been jittery
as interest rates continue to climb. While Treasury yields inched lower
on Wednesday, this comes after the benchmark 10-year Treasury yield
clinched a fresh seven-year high and the 30-year bond yield reached a
high not seen since 2014 during the course of Tuesday's trade.
Concerns surrounding
rising interest rates continue to keep investors on edge, as strong
economic data fuel jitters on what this could mean for the future of
U.S. monetary policy and therefore the economy.
The Treasury Department
auctioned $15 billion in 30-year bond at a high yield of 3.344 percent.
The bid-to-cover ratio, an indicator of demand, was 2.42. Indirect
bidders, which include major central banks, were awarded 64.4 percent.
Direct bidders, which includes domestic money managers, bought 12.8
percent.
Following the central bank's move to hike rates a third time this year, Fed Chair Jerome Powell
said in an interview with PBS that U.S. monetary policy is "far from
neutral," suggesting front-end rates have further room to rise.
"Interest rates are still
accommodative, but we're gradually moving to a place where they will be
neutral," Powell said added. "We may go past neutral, but we're a long
way from neutral at this point, probably."
In the latest surrounding the topic, President Donald Trump criticized the Federal Reserve on Wednesday, saying that the U.S. central bank was "making a mistake" for continuing to increase interest rates.
"The problem [causing the
market drop] in my opinion is Treasury and the Fed. The Fed is going
loco and there's no reason for them to do it. I'm not happy about it,"
Trump went on to say in a separate telephone interview with Fox host Shannon Bream.
"Loco" means "crazy" in Spanish.
"The loco part: that was a
new one," Nomura's Goncalves added. "I don't place much value in it;
the Fed will continue to do what's necessary to keep in the economy from
overheating. They're just trying to get the frothiness out."
"If they don't lean against it, it can be much worse later on."— CNBC's Alexandra Gibbs contributed reporting.

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